Why you should check your credit report regularly
If you’re part of the 67% of Americans that haven’t reviewed their credit report in the past year, you may be wondering why should I check my credit report regularly?
Checking your credit report might be the last thing on your list of financial tasks to conquer, but if you don’t review it regularly, you could encounter some major difficulties.
Your credit report collects information that impacts many areas of your life, because it reflects the financial decisions you’ve made over time. Insurance companies and lenders use this information to determine if you’re eligible for loan products and lower premiums.
And, not only does your credit report have an impact on your borrowing power, it also influences your employment opportunities.
According to a 2018 survey by HR.com, 31% of employers sometimes included a credit check in their background screenings, and 16% always checked a person’s credit.
Just like any other important financial asset, your credit report should be monitored and protected on a consistent basis. The good news is, it’s never been easier and it won’t cost you a dime.
If you haven’t checked your credit report in over a year, keep reading to learn 9 reasons why you should put this task at the top of your financial to-do list.
What’s the difference between a credit report and credit score?
Lenders and employers care about your credit report and credit score. Although both are a reflection of your credit history, they are different from each other.
You can think of both in terms of a high school class. A credit report is like a record of all your assignments, and a credit score is your overall grade.
Your credit report is a detailed report of your credit accounts and payment history with each.
Your credit score is a single numerical value and is calculated as a result of the information in your credit report.
They are separate indicators of your financial reliability, and both are used by lenders to get an accurate picture of your current financial behaviors.
Now that you know the difference, let’s talk about the reasons why you should check your credit report regularly.
#1 You plan on applying for a loan
If you’re planning on applying for a mortgage, a car loan, or any other major loan, you should review your credit report beforehand.
The quality of your report will determine important details such as the loan amount and the interest rate you’ll qualify for.
Knowing what’s in your report will give you a realistic idea of what you can afford.
Also, if your report results in a low credit score, the terms you’re offered will be less favorable than if you had a high credit score. This means a significantly higher interest rate, which could cost you potentially thousands of extra dollars over the life of the loan.
You’ll be prepared to adjust your expectations and make a more educated decision about your borrowing objectives when you’re aware of your credit history. You may even decide to delay applying for a loan until you can improve your credit report.
#2 You want to apply for a job
If you’re wondering what your credit has to do with getting a job, there are a few reasons a potential employer wants to know your credit history.
Obviously, if you would be working with a company’s finances, they would want to know how trustworthy and reliable you are. If you have a stellar credit report that indicates you’re responsible with your own income, they assume that you will be responsible with theirs.
But, even if you’re not handling money, a potential employer will look at your credit report to deduct other conclusions such as your decision-making ability and judgment in your job performance.
If you want to apply for a position that handles money, or is an executive position, checking your credit report will allow you to prepare for any interview questions that may address your financial history.
You will increase your chances of impressing the interviewer if you show you are aware of what’s in your report and can offer a knowledgeable explanation.
#3 Planning for the future
Even if you don’t have anything already planned that would require a credit check, it’s a good idea to check your report. That way, you can start making any repairs and improve your score before you need to rely on it.
You can go to AnnualCreditReport.com and request all 3 reports (Experian, Equifax, TransUnion) for free.
Once you receive your reports, review each one and take an account of these factors:
- Payment history
- Debt balances
- Types of accounts
- Application history
Payment history: Look for any late or non-payments, which increase your risk as an applicant. If this is a factor that is negatively affecting your score, start making all future payments on time and in full.
Debt balances: If you have maxed out on credit balances, you can improve your score by paying down your debt. This is one of the easiest ways to improve your score. Start making larger payments to bring down all high balances.
Types of accounts: Lenders want to see a good balance of various types of debt. If your credit score is solely based on credit cards, this may keep your score from improving.
Application history: Every time you apply for credit, a “pull” shows up on your report. If lenders see too many pulls in a short amount of time, they may think you’re overextending yourself. If you want to improve this factor, allow a good amount of time to pass between applications.
There are no shortcuts to repairing your credit report.
You just need to improve each of the factors above and give it time. Don’t wait until you need a good credit score – be proactive now so you’ll be better prepared in the future.
#4 Identity theft
In a 2018 report, a survey revealed that 33% of U.S. adults have experienced identity theft.
That’s 1 out of 3, folks. If you think it won’t happen to you, consider the stats.
Your credit report could provide clues that your identity may have been stolen. Look for names you don’t recognize, social security numbers that don’t belong to you, and accounts that aren’t yours.
If you suspect you are a victim of identity theft, go to IdentityTheft.gov to submit your claim. You will receive an identity theft report and a recovery plan.
Many times, people don’t know they’ve had their identity stolen until their credit is checked and they discover their score has lowered.
If it’s been a while since you’ve reviewed your credit report, make it a point to check it to make sure your identity is secure.
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#5 Motivation to improve your finances
If your credit report has any negative history in it, you can use this information as motivation to improve your financial situation.
Make it a goal to raise your credit score, then take the necessary steps to make that happen.
Get out of debt, be on time with your payments, and stop using credit cards.
These are all decisions you can make to improve your credit report, as well as creating better financial habits.
#6 A drop in credit score
Your credit score is like your credit report’s “grade”. If you check your score and discover that’s it’s dropped since the last time you checked, or it’s lower than you expected, then look at your credit report to get some answers.
A sudden drop in your credit score could happen because a number of different reasons, and your credit report will tell you what they are.
Some possible explanations could be:
- Late or missed payments
- Recent application for a new line of credit
- A large purchase on a credit card
- You closed a credit card account
- Inaccurate information, or identity theft
- A credit limit was lowered
Figuring out the cause of your lower score will help you know what you need to do to bring it back up.
#7 Maintaining good credit
Make a habit of checking your credit report periodically, and you’ll ensure that it’s accurate and complete when you need to use it.
If you’ve worked hard to have an excellent credit score, be proactive in maintaining it.
Check your credit report at least once a year to confirm your credit history reflects the financial responsibility you’re committed to.
#8 Correcting inaccurate information
According to an FTC study, one in four consumers found errors in their credit report that could adversely affect their credit scores.
These errors may ultimately lead to more expensive loans, higher insurance premiums, and loss of employment opportunities.
Because your credit report includes important financial information that determines your ability to get credit, it’s very important to make sure it’s correct. Take a proactive approach with ensuring your credit history is being reported accurately, and disputing errors in a timely manner.
Fortunately, there are steps you can take to have errors removed from your report. The sooner you catch any mistakes, the better.
#9 It’s free!
What better reason is there? Never turn down a freebie, especially if it helps you maintain financial health.
Your credit report is an important part of your overall financial health and well-being.
Consider a yearly review like an annual checkup, to make sure everything is still in good shape and you catch any issues early.
Once a year, you are entitled to one free report from each credit bureau. If you don’t remember the last time you looked at your credit report, it’s been too long.
Get your free credit report and do a thorough review. Make sure it’s accurate, and then determine ways to improve your score using some of the suggestions in this post.
Protect your credit & check your credit report regularly
Checking your credit report is one way to take the initiative with building great credit.
When you have a favorable credit report and a high credit score, you are in the best position to qualify for lower interest rates and therefore save thousands of dollars over the life of a loan.
Even though you (hopefully) are trying to get out of debt as you get closer to retirement, a good credit report is still one way to prove your financial responsibility. You want to have something to show others how well you’ve managed credit in the past.
So, if you’ve worked hard to earn a high credit score, use your credit report to ensure it’s maintained.
And, if you have some poor credit history, review your report and make a plan for improving it.
Take the steps to build and maintain good credit, because nobody cares as much about your financial health as you do.